Executive summary – Northwest European Hydrogen Monitor 2024 – Analysis - IEA (2024)

Low-emissions hydrogen can play a significant role in decarbonising existing gas and energy systems and will be critical to the countries’ efforts to meet their energy and climate targets. In addition to its environmental benefits, low-emissions hydrogen can help reduce reliance on fossil fuel imports in the medium-term, bolstering energy security.

Northwest Europe is at the forefront of low-emissions hydrogen development. The region accounts for around half of Europe’s total hydrogen demand. It has vast and untapped renewable energy potential in the North Sea and a well-developed, interconnected gas network which could be partially repurposed to facilitate the transmission and distribution of renewable and low-emissions hydrogen from production sites to demand centres.

Low-emissions hydrogen is defined here as hydrogen produced via electrolysis where the electricity is generated from a low-emissions source (renewables or nuclear), biomass, or fossil fuels with carbon capture, utilisation and storage (CCUS). A detailed overview of the terminology is provided in the Annex.

Adopting and implementing clear hydrogen strategies, including medium- and long-term targets, is considered essential to provide the necessary impetus and guidance for the development of hydrogen markets.

Since Russia’s invasion of Ukraine, several Northwest European countries have doubled their hydrogen production targets, and others are considering increases. The majority of the countries in the region adopted production targets for electrolytic hydrogen, while Norway opted for a technology-neutral approach. Altogether, Northwest European countries now have ambition to develop as much as 30 to 40 gigawatts (GW) of electrolyser capacity by 2030. Nonetheless, recent market developments, inflation and cost increases might drive countries to revise their targets. In general, the focus has been on upscaling hydrogen production in many countries, though the attention is also rapidly shifting to stimulating demand.

In addition to strong policy support, regulatory certainty is essential to unlock the investment necessary to scale up a low-emissions hydrogen market and facilitate cross-border trade.

Northwest European countries and the European Union continued to advance regulatory frameworks for low-emissions hydrogen in 2023. The delegated acts outlining detailed rules on the EU definition of renewable hydrogen were formally published in June 2023. In the United Kingdom, the Energy Act 2023 received Royal Assent in October 2023. It creates a new comprehensive legislative regime for the energy system, with key provisions related to hydrogen business models and the regulation of hydrogen pipelines, as well as carbon dioxide (CO₂) transport and storage. And at the end of 2023, the European Union reached a formal agreement on the Hydrogen and Decarbonised Gas Markets Package, laying the foundations for the future European low-emissions hydrogen market.

According to the IEA’s Hydrogen Production Projects Database, less than 4% of the projects that could provide low-emissions hydrogen supply by 2030 have been committed, meaning they are either in operation, have reached a final investment decision (FID) or are under construction. More than 95% are currently undergoing feasibility studies or are in the concept phase.

In contrast, in North America, 14% of potential low-emissions hydrogen supply by 2030 is supported by projects which are either operational, have reached FID, or are under construction. In China, projects which are either operational or are in a mature phase of development (FID and/or under construction) account for more than half of expected low-emissions hydrogen supply by 2030.

Creating demand for low-emissions hydrogen is a key instrument to stimulate investment in low-emissions hydrogen supply including via quotas, fuel standards and public procurement rules. Demand security is essential for the conclusion of long-term offtake agreements, which in turn can help to de-risk investment and improve the economic feasibility of low-emissions hydrogen projects.

Hydrogen demand in Northwest European currently stands at around 4.5Mt per year, making up about 55% of OECD Europe’s total demand and nearly 5% of total global demand for hydrogen. In line with the overall global trend, virtually all hydrogen consumption in Northwest Europe is concentrated in the refining and chemicals subsectors.

In the European Union, the revised EU Renewable Energy Directive (RED III) sets legally binding targets for renewable hydrogen use in industry and transport by 2030. The implied renewable hydrogen demand in Northwest Europe under RED III would be approximately 1.6 Mt by 2030, rising to 2.3 Mt by 2035. This is well below announced low-emissions hydrogen ambitions from Northwest European countries. Combined with the absence of economic incentives to bridge the cost gap between renewable and fossil fuel hydrogen, this helps explain the difficulty many projects developers currently face in securing offtake contracts.

The relatively low share of committed projects highlights the need for a holistic approach to support the nascent low-emissions hydrogen sector. Scaling it up will require an effective, interlocking framework of subsidy schemes and support mechanisms along the entire value chain – including research and development, production, transportation and, in particular, demand creation.

Public funding programmes and state-backed risk-sharing mechanisms (such as contracts for difference) can help to de-risk investment and improve the economic feasibility of low-emissions hydrogen projects. Demand creation should be a key instrument to stimulate investment, including via quotas and public procurement rules. The European Union has launched the Hydrogen Bank, a key financial instrument which aims to de-risk investment in renewable hydrogen projects. Under the auctions carried out through the Hydrogen Bank, renewable hydrogen producers bid for a fixed premium to bridge the gap between their production costs and the price consumers are currently willing to pay. The first auction round, totalling EUR 800 million, attracted 132 project bids and accounted for 8.5 GW of electrolyser capacity, though only a small fraction of them were funded in the first round.

The Hydrogen Monitor provides a detailed overview of the various subsidy schemes and support mechanisms available both at the level of the European Union and at national level in Northwest European countries.

Based on announced projects that aim to trade hydrogen or hydrogen-based fuels, 16Mt of hydrogen equivalent (H₂-eq) could be moved around the globe by 2030. However, three-quarters of export-oriented projects are in early stages of development. Less than one-third in terms of volume by 2030 have identified a potential offtaker. Countries in the Northwest European region account for three-quarters of global import volume by 2030 for which a final destination has been identified.

Instruments such as auctions can be used to create a bidding competition for contracts and help close the gap between production costs and the prices consumers are willing to pay. For example, Germany’s H2Global auction-based mechanism will facilitate the conclusion of long-term import contracts for low-emissions hydrogen and hydrogen derivatives. The scale-up of international trade in hydrogen and hydrogen derivatives will also require building up transport infrastructure, including ports. Northwest Europe hosts 13 ammonia-handling facilities and 16 facilities that handle methanol, mainly concentrated in Germany, France and the Netherlands.